BoT review of GST on low-value imported goods
On 5 July 2021, the Federal Government announced that the BoT would undertake a review of the application of GST to low-value imported goods; rules that have been in place since 1 July 2018. Consultations took place in August and September of this year and the time for submissions has now closed. The BoT’s report is due on 17 December 2021.
With the GST system recently celebrating its 21st birthday (in lockdown), it’s worth noting how rare new legislative measures like these are. Conducting a formal review of such new measures is even rarer. So what should the review find?
How is GST applied to low-value imported goods?
When GST was first introduced, supplies of goods into Australia that were worth less than $1,000 fell into a black hole — they usually weren’t connected with Australia and therefore didn’t give rise to a taxable supply; and they didn’t qualify as taxable importations either. A win for overseas suppliers and Australian consumers, but arguably not a level playing field for Australian suppliers.
Since 1 July 2017, supplies of low-value goods brought into Australia (under $1,000 customs value) have been deemed connected with Australia, where they are made to Australian consumers for private or domestic purposes. This has required suppliers of those low-value goods who meet the GST registration turnover threshold to register for GST (via a limited registration regime) and pay GST on the supply of those goods.
In certain circumstances, the Electronic Distribution Platform (EDP) through which that supply is made can be deemed the supplier for GST purposes, and be required to register for GST and pay GST on the supply of those goods. The EDP rules mimic those for intangible supplies that were introduced in 2016. An EDP is an electronic service such as a website, internet portal or online marketplace that allows entities to make supplies available to end-users.
The existing rules around supplies of goods into Australia worth more than $1,000 remained in place. These supplies usually give rise to a taxable importation, with the GST usually payable by the importer at the time of importation.
Why were these measures introduced?
These measures were introduced primarily to level the playing field for Australian businesses who were required to pay GST on supplies of goods worth less than $1,000, and therefore at a competitive disadvantage relative to overseas suppliers offering the same goods.
It probably helped that they also shored up the integrity of Australia’s GST base, to the tune of several hundreds of millions of dollars of extra GST revenue each year.
Have these measures been effective?
Generally, these measures appear to be working well. Key pre-implementation fears were that overseas suppliers would refuse to participate (and test the ATO’s right to collect GST outside its jurisdiction), and that some suppliers would stop supplying to Australian customers altogether to avoid the new tax.
These fears have not eventuated (despite some early hiccups) — specifically:
- the ATO reports that revenue from these new measures have outstripped original forecasts by a significant margin; and
- all key suppliers and EDPs into the Australian market have continued to supply to Australian consumers, and appear to be complying with the new regime.
What issues are taxpayers facing in applying these measures?
There are complexities in these measures around when suppliers (versus EDPs) are liable for GST, and how suppliers determine whether they are selling to Australian consumers (versus Australian businesses). Anecdotally, these have been less of an issue than expected. The ATO’s guidance in LCR 2018/1, LCR 2018/2 and LCR 2018/3 has been well received.
One big issue remains
The biggest remaining issue in my view is the complexity of having two completely different regimes for the supplies of goods worth more than $1,000, and the supplies of goods worth less than $1,000.
Imagine the reaction of a prospective new entrant into the Australian market. They might notice a large number of Australian consumers buying their products via an EDP, and create a dedicated online presence for Australian consumers and launch a domestic marketing campaign, as an interim step before setting up a physical presence in Australia. They sell goods ranging from $500 to $5,000.
This supplier will not only be faced with an unfamiliar Australian GST regime, but two of them! Systems will need to be redesigned to capture which supplies give rise to GST at the time of sale, versus at the time of importation. The rules around bundling of multiple goods into a single order will need to be understood. Will it all be too hard? And if they walk away from their plans, will anyone know they did so, and why?
I look forward to seeing the outcome of the BoT review, and any recommendations it may make.
The GST Committee continues to get involved in these consultations as well as other submissions and over the coming months, the TTI website will contain more detail on our Committee membership and activities.
Kind regards,
Bastian Gasser, ATI – Partner, MinterEllison
Chair of The Tax Institute’s National GST Technical Committee
[TaxVine #20, 22.10.21]
[Tax Month – October 2021 – Previous Tax Month] 24.10.21